Dear HR Members,
Could you please clarify the following points as per the new wage regulations:
Computation of Base Wage (50%)
Scenario 1
If the salary structure includes Basic, HRA, LTA, and Special Allowance, and Basic is set at 50% of Gross, is this correct?
Scenario 2
Should 50% of (Gross + Employer EPF) be considered as Basic, excluding Employer ESIC and Gratuity from CTC?
Scenario 3
If the state minimum wage is ₹15,000, and we are currently paying ₹20,000 as per Scenario 1 Salary Structure, is this correct?
Or should we consider Basic = ₹15,000 and the remaining ₹5,000 as Special Allowance?
In such cases, how will ESIC wages be calculated?
Scenario 4
If we are paying only the Minimum Wage, should the total minimum wage be considered as “Wage” for calculating EPF, ESIC, Gratuity, and Leave Encashment?
From India, Hyderabad
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5Could you please clarify the following points as per the new wage regulations:
Computation of Base Wage (50%)
Scenario 1
If the salary structure includes Basic, HRA, LTA, and Special Allowance, and Basic is set at 50% of Gross, is this correct?
Scenario 2
Should 50% of (Gross + Employer EPF) be considered as Basic, excluding Employer ESIC and Gratuity from CTC?
Scenario 3
If the state minimum wage is ₹15,000, and we are currently paying ₹20,000 as per Scenario 1 Salary Structure, is this correct?
Or should we consider Basic = ₹15,000 and the remaining ₹5,000 as Special Allowance?
In such cases, how will ESIC wages be calculated?
Scenario 4
If we are paying only the Minimum Wage, should the total minimum wage be considered as “Wage” for calculating EPF, ESIC, Gratuity, and Leave Encashment?
From India, Hyderabad
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The new wage regulations can be complex, and it's important to understand them thoroughly to ensure compliance.
In the first scenario, if the Basic is set at 50% of the Gross, it is generally correct. However, it's important to ensure that the Basic wage is not less than the minimum wage set by the state.
For the second scenario, the Basic wage should ideally be 50% of the Gross salary. The EPF contribution by the employer is part of the CTC and not the Gross salary. Therefore, it should not be included in the calculation of the Basic wage. ESIC and Gratuity are benefits provided by the employer and are part of the CTC, not the Gross salary.
In the third scenario, if the state minimum wage is ₹15,000 and you are paying ₹20,000 as per the first scenario, it is correct. However, if you wish to structure it as Basic = ₹15,000 and the remaining ₹5,000 as Special Allowance, it is also acceptable. ESIC wages would be calculated on the Gross wages which would include the Basic and Special Allowance.
In the fourth scenario, if you are paying only the Minimum Wage, it should be considered as the “Wage” for calculating EPF, ESIC, Gratuity, and Leave Encashment.
Remember, it's crucial to comply with the minimum wage laws of the state and the central government. Non-compliance can lead to penalties and legal consequences. Always consult with a labor law expert or legal advisor to ensure your wage structure is compliant with the law.
From India, Gurugram
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In the first scenario, if the Basic is set at 50% of the Gross, it is generally correct. However, it's important to ensure that the Basic wage is not less than the minimum wage set by the state.
For the second scenario, the Basic wage should ideally be 50% of the Gross salary. The EPF contribution by the employer is part of the CTC and not the Gross salary. Therefore, it should not be included in the calculation of the Basic wage. ESIC and Gratuity are benefits provided by the employer and are part of the CTC, not the Gross salary.
In the third scenario, if the state minimum wage is ₹15,000 and you are paying ₹20,000 as per the first scenario, it is correct. However, if you wish to structure it as Basic = ₹15,000 and the remaining ₹5,000 as Special Allowance, it is also acceptable. ESIC wages would be calculated on the Gross wages which would include the Basic and Special Allowance.
In the fourth scenario, if you are paying only the Minimum Wage, it should be considered as the “Wage” for calculating EPF, ESIC, Gratuity, and Leave Encashment.
Remember, it's crucial to comply with the minimum wage laws of the state and the central government. Non-compliance can lead to penalties and legal consequences. Always consult with a labor law expert or legal advisor to ensure your wage structure is compliant with the law.
From India, Gurugram
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First of all wages for any purpose cannot be less than the statutory minimum wages notified for the industry and the scheduled industry. Section 5 of the Code on Wages confirms it. Therefore, 50% concept will not be applicable in a scenario where the minimum wages is less than that.
If your salary structure includes Basic pay, HRA, LTA, etc you have to take the entire salary except the component which is paid yearly, ie, LTA for calculation of ESI. That is, the existing system will continue.
The employer's contributions to PF, though considered as an allowance under the Code, will not be considered for contribution to PF because of so many technical issues that will come. The definition of wages under the Codes itself is a stupid definition because it includes bonus and other annual payments. Therefore, for contribution to PF please do not take 50% of total remuneration but take the existing base only, ie, gross salary except HRA. After all it is a matter of only Rs 15000 for many establishments.
Special allowance is an allowance given to some employees only considering a special skill they put in to perform the work, and therefore, if it is paid universally to all employees, the same will be considered as part of wages only. If the wages including special allowance is less than Rs 15000, then you cannot exclude special allowance from the wages for contribution to PF. This will apply to gratuity also.
If you are paying only the minimum wages, then the entire amount will qualify for contributions to PF, bonus, leave encashment and gratuity.
From India, Kannur
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If your salary structure includes Basic pay, HRA, LTA, etc you have to take the entire salary except the component which is paid yearly, ie, LTA for calculation of ESI. That is, the existing system will continue.
The employer's contributions to PF, though considered as an allowance under the Code, will not be considered for contribution to PF because of so many technical issues that will come. The definition of wages under the Codes itself is a stupid definition because it includes bonus and other annual payments. Therefore, for contribution to PF please do not take 50% of total remuneration but take the existing base only, ie, gross salary except HRA. After all it is a matter of only Rs 15000 for many establishments.
Special allowance is an allowance given to some employees only considering a special skill they put in to perform the work, and therefore, if it is paid universally to all employees, the same will be considered as part of wages only. If the wages including special allowance is less than Rs 15000, then you cannot exclude special allowance from the wages for contribution to PF. This will apply to gratuity also.
If you are paying only the minimum wages, then the entire amount will qualify for contributions to PF, bonus, leave encashment and gratuity.
From India, Kannur
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Dear Sir,
Thank you for your valuable inputs; they have clarified several aspects of wage compliance. However, I have a query regarding Scenario 3:
If the state minimum wage is ₹18,000 and we are currently paying ₹28,000, current structure of the salary as follows:
Basic: ₹14,000
HRA: ₹5,600
LTA: ₹1,400
Other Allowances: ₹7,000 (Balance of Gross)
With statutory wage components calculated as:
EPF on: ₹15,000
ESIC: Not applicable
Gratuity on : ₹14,000
Leave Encashment on: ₹14,000
Maternity Benefit: ₹28,000
OR
Should we consider Basic = ₹18,000 and the remaining ₹10,000 as other allowances to comply with the Code on Wages, with statutory wage components as:
EPF: ₹15,000
ESIC: ₹18,000 (applicable)
Gratuity: ₹18,000
Leave Encashment: ₹18,000
Maternity Benefit: ₹18,000
From India, Hyderabad
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Thank you for your valuable inputs; they have clarified several aspects of wage compliance. However, I have a query regarding Scenario 3:
If the state minimum wage is ₹18,000 and we are currently paying ₹28,000, current structure of the salary as follows:
Basic: ₹14,000
HRA: ₹5,600
LTA: ₹1,400
Other Allowances: ₹7,000 (Balance of Gross)
With statutory wage components calculated as:
EPF on: ₹15,000
ESIC: Not applicable
Gratuity on : ₹14,000
Leave Encashment on: ₹14,000
Maternity Benefit: ₹28,000
OR
Should we consider Basic = ₹18,000 and the remaining ₹10,000 as other allowances to comply with the Code on Wages, with statutory wage components as:
EPF: ₹15,000
ESIC: ₹18,000 (applicable)
Gratuity: ₹18,000
Leave Encashment: ₹18,000
Maternity Benefit: ₹18,000
From India, Hyderabad
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(Fact Checked)-Your understanding is correct. As per the Code on Wages, 2019, the Basic wage should not be less than the minimum wage. Your calculations for statutory wage components are also accurate. Keep it up! (1 Acknowledge point)
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The wage structure you've provided for the third scenario seems to be correct as long as the total wage is above the minimum wage. However, it's crucial to consider that as per the Code on Wages 2019, the sum of basic pay, dearness allowance, and retaining allowance should be at least 50% of the total remuneration. This is to ensure that the allowances do not exceed 50% of the total remuneration, affecting the statutory benefits calculation.
In the fourth scenario, if you're paying only the Minimum Wage, then yes, the total wage should be considered as "Wage" for calculating EPF, ESIC, Gratuity, and Leave Encashment. This is because all these statutory benefits are calculated on the wage as defined under their respective laws.
Your query regarding the change in structure to comply with the Code on Wages can be addressed as follows:
1. If you choose to consider Basic = ₹18,000 and the remaining ₹10,000 as other allowances, you would be in compliance with the Code on Wages. However, please note that this will increase the employer's cost due to increased liabilities towards EPF, ESIC, Gratuity, and Leave Encashment.
2. The statutory wage components will be recalculated as:
- EPF: ₹15,000 (As per EPF Act, the wage ceiling is ₹15,000)
- ESIC: ₹18,000 (As this will now be applicable)
- Gratuity: ₹18,000
- Leave Encashment: ₹18,000
- Maternity Benefit: ₹18,000
For more specific guidance on wage structure and statutory compliances, you may refer to the official https://labour.gov.in/sites/default/...nWages2019.pdf Code on Wages 2019 document.
Please note that this advice is based on the current regulations and may change as the laws are updated. Always consult with a legal expert or labor law consultant for accurate information.
From India, Gurugram
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In the fourth scenario, if you're paying only the Minimum Wage, then yes, the total wage should be considered as "Wage" for calculating EPF, ESIC, Gratuity, and Leave Encashment. This is because all these statutory benefits are calculated on the wage as defined under their respective laws.
Your query regarding the change in structure to comply with the Code on Wages can be addressed as follows:
1. If you choose to consider Basic = ₹18,000 and the remaining ₹10,000 as other allowances, you would be in compliance with the Code on Wages. However, please note that this will increase the employer's cost due to increased liabilities towards EPF, ESIC, Gratuity, and Leave Encashment.
2. The statutory wage components will be recalculated as:
- EPF: ₹15,000 (As per EPF Act, the wage ceiling is ₹15,000)
- ESIC: ₹18,000 (As this will now be applicable)
- Gratuity: ₹18,000
- Leave Encashment: ₹18,000
- Maternity Benefit: ₹18,000
For more specific guidance on wage structure and statutory compliances, you may refer to the official https://labour.gov.in/sites/default/...nWages2019.pdf Code on Wages 2019 document.
Please note that this advice is based on the current regulations and may change as the laws are updated. Always consult with a legal expert or labor law consultant for accurate information.
From India, Gurugram
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For the purpose of compliance of Minimum wages requirement the gross salary payable excluding the variables like commission and incentives will be taken. Therefore, if the LTA is an allowance paid without asking for tickets or travel details, then it is considered as wages. But the issue is that if it is payable every month it will attract ESI (in such cases where the salary is Rs 21000). Similarly, there is no allowance called Other Allowance. If you have such an allowance, you have to show which all allowances are included in it. There can be medical allowance, education allowance, conveyance or traveling allowance, special allowance, hill allowance, city allowance etc but there is no allowance called "other allowance".
You cannot calculate gratuity on a salary which is below the statutory minimum wages. Therefore, if the minimum wages is Rs 18000, you should calculate gratuity at least on that wages. Of course, if you have a component called "other allowance" you have to show which all are coming under it. Obviously, in the absence of Dearness Allowance the chances of taking it as dearness allowance cannot be ruled out.
Regarding payment of PF contribution, it is okay that you can take a base of Rs 15000, because the EPFO cannot demand any contribution on salary above Rs 15000. naturally, if the PF threshold limit is increased, they will demand it on higher amount for sure.
Again, you can not restrict the monthly payment while an employee is on maternity leave to minimum wages when she has been getting more than that. In respect of an employee whose wages has been less than the minimum wages, the wages payable during maternity leave days should be on minimum wages but since you had higher salary, that higher salary would qualify for payment during maternity leave days also. Of course, if there is a component like conveyance allowance or telephone allowance, these can be excluded from the salary.
From India, Kannur
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You cannot calculate gratuity on a salary which is below the statutory minimum wages. Therefore, if the minimum wages is Rs 18000, you should calculate gratuity at least on that wages. Of course, if you have a component called "other allowance" you have to show which all are coming under it. Obviously, in the absence of Dearness Allowance the chances of taking it as dearness allowance cannot be ruled out.
Regarding payment of PF contribution, it is okay that you can take a base of Rs 15000, because the EPFO cannot demand any contribution on salary above Rs 15000. naturally, if the PF threshold limit is increased, they will demand it on higher amount for sure.
Again, you can not restrict the monthly payment while an employee is on maternity leave to minimum wages when she has been getting more than that. In respect of an employee whose wages has been less than the minimum wages, the wages payable during maternity leave days should be on minimum wages but since you had higher salary, that higher salary would qualify for payment during maternity leave days also. Of course, if there is a component like conveyance allowance or telephone allowance, these can be excluded from the salary.
From India, Kannur
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(Fact Checked)-Your explanation is accurate and comprehensive. It's important to remember that allowances must be clearly defined, and minimum wage regulations must be adhered to. Keep up the good work! (1 Acknowledge point)
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Based on the discussion, here are some clarifications and guidance:
1. The scenario where the salary structure includes Basic, HRA, LTA, and Special Allowance with Basic set at 50% of Gross is correct. However, remember that LTA is considered as wages if it is paid without asking for tickets or travel details.
2. For the second scenario, 50% of (Gross + Employer EPF) should be considered as Basic, excluding Employer ESIC and Gratuity from CTC.
3. If the state minimum wage is ₹15,000 and you are currently paying ₹20,000, it is correct. But you can consider Basic = ₹15,000 and the remaining ₹5,000 as Special Allowance. ESIC wages will be calculated on gross wages.
4. If you are paying only the Minimum Wage, the total minimum wage should be considered as “Wage” for calculating EPF, ESIC, Gratuity, and leave encashment.
5. You cannot calculate gratuity on a salary which is below the statutory minimum wages. Therefore, if the minimum wages is Rs 18000, calculate gratuity at least on that wages.
6. Regarding payment of PF contribution, you can take a base of Rs 15000 because the EPFO cannot demand any contribution on salary above Rs 15000. Check the https://www.epfindia.gov.in for more information.
7. If an employee is on maternity leave, you can not restrict the monthly payment to minimum wages when she has been getting more than that.
These are some practical solutions as per the labor laws and policies in Hyderabad, India. Always remember to stay compliant with the latest labor laws in your location.
From India, Gurugram
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1. The scenario where the salary structure includes Basic, HRA, LTA, and Special Allowance with Basic set at 50% of Gross is correct. However, remember that LTA is considered as wages if it is paid without asking for tickets or travel details.
2. For the second scenario, 50% of (Gross + Employer EPF) should be considered as Basic, excluding Employer ESIC and Gratuity from CTC.
3. If the state minimum wage is ₹15,000 and you are currently paying ₹20,000, it is correct. But you can consider Basic = ₹15,000 and the remaining ₹5,000 as Special Allowance. ESIC wages will be calculated on gross wages.
4. If you are paying only the Minimum Wage, the total minimum wage should be considered as “Wage” for calculating EPF, ESIC, Gratuity, and leave encashment.
5. You cannot calculate gratuity on a salary which is below the statutory minimum wages. Therefore, if the minimum wages is Rs 18000, calculate gratuity at least on that wages.
6. Regarding payment of PF contribution, you can take a base of Rs 15000 because the EPFO cannot demand any contribution on salary above Rs 15000. Check the https://www.epfindia.gov.in for more information.
7. If an employee is on maternity leave, you can not restrict the monthly payment to minimum wages when she has been getting more than that.
These are some practical solutions as per the labor laws and policies in Hyderabad, India. Always remember to stay compliant with the latest labor laws in your location.
From India, Gurugram
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(Fact Checked)-Your explanation is accurate and well-explained, especially regarding the 50% concept, ESI calculation, and the special allowance. Keep up the good work! (1 Acknowledge point)